PURPOSE

Staff is requesting City Council authorization to 1) adopt a Fixed Fee, Guaranteed Maximum Price (GMP) delivery method as an alternative to the traditional Design-Bid Build (DBB) delivery method and 2) advertise for Statement of Qualifications (SOQ) for construction management services for the Robert R. Ovrom Park Project and the DeBell Clubhouse Replacement Project. 

BACKGROUND

The City has historically used a DBB delivery method for its capital improvement projects.  This methodology follows the sequential process of designing a project based on specific program needs, competitively bidding completed construction documents, and executing a construction contract with the lowest responsible bidder to build the project.   This delivery method provides several benefits:

1. DBB provides standard control of design and construction costs. 

2. The construction costs are competitively bid and are known prior to start of construction.

3. The general contractor (GC) assumes liability for the stated construction amount and schedule duration.

4. The City incurs minimal pre-construction costs (program and design costs only).

5. DBB reduces the administrative burden on public agency staff (single contract to administer). 

However, this process must confront these inherent challenges:

1. The lowest responsible bid reflects a �lowest-cost� interpretation of the current construction documents and sometimes contains errors and/or omissions.

2. The lowest responsible bid does not reflect the lowest final cost or the guaranteed maximum cost, is not necessarily within the budget, and may not reflect the complete project cost if the construction documents are incomplete in any manner. 

3. The working relationship between the City and the GC is inherently adversarial due to the high risk nature of the bid process. 

4. The low bidder is not necessarily the best qualified.

5. The City has little control over the GC's staff.

6. The GC has no opportunity to provide input during the planning and design process.

7. Low bid contracting increases the risk of potential claims and/or litigation.

8. Incomplete and/or inaccurate construction documents can lead to substantial cost exposure and schedule delays. 

9. GC�s costs remain confidential. 

More recently, hybrid delivery methods have evolved driven by the need to improve project delivery within the constraints of budget and schedule.  Consequently, over the past several years, numerous public agencies have adopted alternative delivery strategies to improve owner protection against substantial delays and added project costs from the inherent shortcomings of DBB.  

Results from alternative delivery methods have been very positive and the trend continues away from the traditional process for public agency projects although the traditional process is still best suited for select projects.  Private owners however, predominately and successfully employ alternate delivery strategies to mitigate risk.  The construction industry also embraces this trend and fully appreciates the mutual benefits this delivery strategy provides.

The City adopted alternative delivery strategies for the �Capon Project� (formerly known as the �Verdugo Switching Station Project�) and the Buena Vista Branch Library & Lincoln Park Project.  The City also adopted a GMP delivery method for the Development and Community Services Building Project. 

ANAYSIS

A public agency�s normal and well-established DBB process is designed to secure the best services possible at the lowest responsible price.  The process is ideal in theory, but in practice, it rarely functions as desired.

In a move to enhance project delivery strategies and improve the City�s protection against project cost overruns and schedule delays, Burbank Municipal Code Section 9-101(g) was amended on August 1, 2000 to allow the City Council to approve alternate methods of securing project services when it is in the City�s best interest.    The Robert R. Ovrom Park Project and the DeBell Clubhouse Replacement Project are important and critical public facilities that deserve the best project team that can be assembled, within financial constraints, to ensure these projects meet the goal of providing quality design on schedule and within budget.  Given the size, type and complexity of these projects and some of the inherent challenges of DBB, the City�s interest would be best served by a Fixed Fee, GMP delivery strategy. 

GMP Overview

Many public agencies, owners and developers object to not knowing a project�s final and actual cost until construction is completed and the occupants have moved in.   The traditional DBB delivery method followed by most public agencies relies on a lump sum, lowest responsible bidder approach.  Although this delivery method identifies the project�s construction cost and completion date prior to construction commencement, it does not necessarily guarantee either.

Under a Fixed Fee, GMP strategy the:

• Construction Manager at Risk (CM at Risk � typically a GC) guarantees project delivery in accordance with the construction documents and within a specified cost and timeframe before construction begins. 

• GC is typically selected by GMP contract negotiation including a Request for Qualifications, Request for Proposal, and interview process.

• All subcontractor trades are competitively bid.

• GC receives a negotiated Fixed Fee for its services.

• GC pays for costs in excess of GMP either out of its fee or its pocket.

• Project savings are returned to owner or may be shared with GC as a project performance incentive.

The GMP is generally developed as a continually refining process and collaborative effort between an owner, architectural-engineering firm (A-E firm), and GC as a project approaches completion.  A GMP can be developed and approved by the owner at various construction document completion stages and/or for separate construction phases.  For example, a GMP can be developed for 70% complete construction documents. The owner�s advantage under this scenario is that construction can commence prior to completion of the construction documents and is a similar approach employed for fast-track projects.

Separate GMPs can also be developed for the Core & Shell (C&S) and Tenant Improvement (T.I.) construction phases.  This approach also facilitates a project�s completion schedule by allowing construction to start on the C&S component although design for the T.I. component has not been completed.   A primary advantage provided by this scenario is that a project�s duration is shortened by overlapping portions of the design and construction effort versus performing these phases in series.

A GMP delivery strategy has the advantage of flexibility in its programming and execution over the sequential process for DBB.

GMP Cost Structure

There are two primary elements that comprise a GMP cost structure; Direct Costs and Construction Contingency.  This is shown diagrammatically below with descriptions of each component following.

GMP COST STRUCTURE

GMP

GMP = Direct Cost + Construction Contingency

Owner initiated change orders will increase the GMP.  The General Contractor is entitled to a pro-rata increase of its general conditions and overhead, plus fixed fee.  These are typically a percentage of the change order�s direct costs and are established in advance as part of the negotiated GMP contract.

Direct Costs include the: a) GC�s general conditions and overhead, b) GC�s negotiated fixed fee and c) actual costs of the subcontractors� competitively bid scope of work.  General conditions and overhead are reimbursable items and do not represent a GC�s profit center.

Construction Contingency represents pre-established project funds specifically set aside to cover unanticipated project related costs due to weather, force majuere, subcontractor failure, accelerated scheduling, and other unforeseen conditions.  At project completion, any unused construction contingency is normally returned to the owner.  However, as an owner option, any portion of the unused contingency can be shared with the GC as a project completion incentive.

Construction Contingency is not to be confused with Project Contingency.  The latter is an owner-budgeted line item outside the approved GMP and the GC�s contract to cover owner initiated scope changes and/or other project requirements.  Project Contingency is completely separate from Construction Contingency.

Contingency Issues represent unforeseen conditions that are compensable. An example would be additional compensation paid to a subcontractor who is directed by the owner to excavate and remove buried deleterious materials discovered during grading operations that were not known to exist at the time of its bid.  Funding for this unforeseen event would be drawn from Construction Contingency and transferred to Direct Cost, while the GMP amount remains fixed.  The GC would also be entitled to additional compensation of its pro-rata overhead and profit based on pre-established contract rates.

Buy-out Savings represent savings from the competitive bid process at the subcontractor level.  To the extent that specific scope of competitively bid work is awarded below the original budgeted amount established in the GMP, the savings will be transferred from the Direct Cost component of the GMP into the Construction Contingency.  If the budget for a particular scope of competitively bid work is exceeded however, an amount equal to the budget overrun will be withdrawn from the Construction Contingency and transferred to the Direct Cost component.  In either case, the GMP remains unchanged.  The GC�s overhead and profit do not change.

Project Savings represent remaining funds after project completion.  Examples include unused Construction Contingency or the GC�s excess general conditions and overhead.  These savings are returned to the owner.

Fixed Fee, GMP Organizational Structure

The GMP delivery strategy recommended by staff is shown diagrammatically below.

FIXED FEE, GMP ORGANIZATIONAL STRUCTURE

The owner, architectural-engineering firm (A-E firm), and GC work together to develop and refine the GMP. 

Benefits of a Fixed Fee, GMP Contract

The benefits of a Fixed Fee, GMP contract include:

1. The CM at Risk is closely aligned with the City and A-E firm, resulting in a proactive rather than a reactive management approach.

2. The City has increased control over cost development.

3. The project�s construction cost is known in advance of construction commencement and guaranteed not to exceed that amount. 

4. The project schedule is known in advance and guaranteed.

5. The cost exposure inherent in lump sum contracts is mitigated.

6. The GMP represents the most refined and applicable Engineer�s Estimate

7. The City is ensured of enhanced project design, cost control, and management delivery.

While the GMP process provides these benefits, it also requires early and more active involvement by the City and requires in-house or hired expertise. This does represent an �added-value� soft cost for the project however. 

RFQ/RFP Implementation

Staff recommends that the City retain a CM at Risk for the Robert R. Ovrom Park Project and the DeBell Clubhouse Replacement Project using the following Request for Qualifications (RFQ)/Request for Proposal (RFP) process:

Step 1:  Time to complete � 90 days

1.      Develop qualification criteria and objective selection requirements for inclusion in the RFQ.

2.      Publicly advertise the RFQ.

3.      Score submitted RFQs using pre-established scoring system to objectively identify qualified list of GCs.

Step 2:  Time to complete � 45 days

1.      Issue RFP to qualified contractors only.

2.      Review submitted RFPs and identify GC shortlist for interviews.

3.      Interview, select, and execute contract with GC.

Step 3:  Time to complete � 120 days

1.      Develop GMP based on subcontractor bidding process and submit to City Council for approval.

2.      Assign subcontractor awards to GC.

3.      Commence construction.

The RFQ/RFP process benefits the City by:

1.      Screening potential GCs who are not qualified without imposing undue costs for subsequent proposal efforts.

2.      Mitigating potential legal claims filed by GCs the City deems unqualified.

3.      Resulting in a more consistent group of qualified GCs and establishing a �level playing field� while retaining competitive

      benefits.

The RFQ/RFP process recommended by staff in this report has been adopted by numerous state agencies and public entities and is the normal procedure in the private sector. 

FISCAL IMPACT

There is no additional fiscal impact if the City Council approves the GMP delivery method recommended by staff.  The Robert R. Ovrom Park Project and the DeBell Clubhouse Replacement Project will remain within the project budgets that will be approved by the City Council at a later date. 

RECOMMENDATION

Staff recommends that the City Council approve the proposed resolution adopting a Fixed Fee, GMP delivery method and authorizing the advertisement for Statement of Qualifications for construction management services for the Robert R. Ovrom Park Project and the DeBell Clubhouse Replacement Project. 

go to the top